changing word "blogroll"

The easiest way is when you add or edit the link in My Dashboard - Blogroll. You can select one or more categories to each link, so, don't select "Blogroll" category.

What you can do is to create a category for the links of your friends, other one for that of your family, etc, and you will see how every link appears under it corresponding category, without see "Blogroll" word.

A quick test shows that display of 'Blogroll' for that theme is generated by the name of the Category. Either change the name of the Blogroll category or move your links into a new Category with a different name.